The only month that shows an average decline in all three
periods is September. Money managers debate why that is. It could be that
people sit down after Labor Day and re-evaluate their portfolios. Regardless,
the arrival of September is making some people nervous now. Even some who feel
bullish for the long run are warning clients to beware the ides of September.
James Paulsen, chief investment strategist at Wells Capital
Management which oversees $345 billion, is a little worried. Mr. Paulsen has
been one of the business’s most relentless stock bulls for years, but now he
says U.S. stocks could fall as much as 15% some time this autumn. He is urging
clients to shift some money into foreign stocks, which as a whole are less
expensive than U.S. stocks. He emphasizes that he doesn’t think the bull market
is over; it could run another five years. He explained a 15% decline would be
less than the 20% drop that typically defines a bear market, but would
certainly be enough to rattle investors.
Mr. Paulsen and many others expect investors soon to begin
wringing their hands over Federal Reserve plans to raise target interest rates
next year. Recent readings on job creation and economic growth have been
stronger than expected. Many analysts and economists expect the Fed to wait
until mid-2015 to raise rates. But if the economy shows more signs of strength
this fall, worries could spread that the Fed will move sooner and that could
trouble the stock market.
One reason money managers aren’t more worried is that, in
their eyes, neither the economy nor market indicators have gone to extremes. The
S&P 500 Friday traded at 19 times its companies’ earnings for the past
year. That is well above the historical average of 15.5, but still far from the
extreme of 40 seen in the late 1990s.
Globally, central bankers still worry more about deflation
than inflation, meaning they are in no rush to raise rates. Fed rate increases
are expected to be modest and slow. They could be partly offset by decisions of
central bankers in most of the rest of the world to ease monetary policy and
The bond market supports this view. Bond yields remain
exceptionally low, suggesting bond investors expect slow inflation and economic
growth. The yield of the benchmark 10-year U.S. Treasury note was at 2.347%
late Friday, the third lowest of the year. Analysts said some investors were
seeking safety amid worries about global economic weakness and about the risk
that high-priced stocks could slump.
As for September, it can be noted that the most significant
September declines have followed stock weakness in the first eight months. That
reinforces the suspicion that investors re-evaluate in September and cut stock
holdings when times have been bad. So far this year, stocks are up, but
investors are worried anyhow. Whether that will lead them to sell in September
or to hang on is the big question on many people’s minds.
here to access the full article on The Wall Street Journal.